Tuesday, September 08, 2009

Ten favourite finance and investing books

Over the last 20+ years I have read a lot of books on personal finance, investing and related topics. The following is a list of the the ten books which I have found most useful and/or interesting. I could easily list a lot of other books which I regard as excellent, but have arbitrarily limited myself to ten.

The ten books selected cover what I consider to be the four of the seven main areas relevant to people concerned about their finances. The fifth area (biographies) is not represented - as much as I enjoy reading about the successes of others, such books provide much less in terms of assistance with my financial management than books on the other topics listed below. The sixth (tax) and seventh (estate planning) topics are not represented either. A combination of Hong Kong's relatively simple tax regime and the lack of books on estate planning in Hong Kong make inclusion of books on these important subjects either immaterial or impossible.

The basic criteria for selection is personal preference. I'm sure others will have different views.

Personal finance

The biggest issue I have with a lot of the literature on personal finance is that it is heavily focused on issues which are relevant to US investors (particularly on the tax side).

The Millionaire Next Door (Thomas Stanley and William Danko): this is the best book on the live within your means principle that I have read.

The Automatic Millionaire (David Bach): a basic guide to the need to and benefits of paying yourself first, saving early and often and paying down unproductive debt.

Investing

One of the issues I have with a lot of the literature on investing is the assumption that a range of low cost index funds are readily available. Until 2000 when the Hong Kong Tracker ETF was listed such funds were generally not available to Hong Kong investors. Things have improved since then, but the range of low cost funds is still limited and the MERs of what funds are available are higher than US investors in the likes of Vanguard are used to paying.

Missing from the list are books about investing in real estate. I have not found such a book on Hong Kong real estate and other books on the subject tend to be country specific.

The Four Pillars of Investing (William Bernstein): writing on personal finance and investing does not get much clearer than this - for most people low cost index funds covering basic asset classes and periodic rebalancing will produce the best returns. The author also gives some history lessons and a short course in behavioural finance.

The Only Guide to Alternative Investments You Will Ever Need (Larry Swedroe): covers most of the alternative investments available to investors and explains in very clear language which ones are worth considering and which ones should be avoided.

Where are the Customers' Yachts? (Fred Schwed): one of the earliest lessons on the conflict between the interests of the brokers and the interests of their clients.

Economics

Notwithstanding the current popularity of criticism of classical economics, understanding economics is helpful when making investment decisions.

The Origin of Wealth (Eric Beinhocker): one of the best books I have read. Excellent. Among other issues, this book explains why so few companies out perform for long periods of time.

Your Money and Your Brain (Jason Zweig): a basic introduction to behavioural economics. A useful self help book in the sense that it gives you the knowledge to avoid doing a lot of dumb things with your money. I wish I had read this before I invested in a Vietnam equity fund near the top of the market.

History

It seems that every bull market/bubble throws up a new generation of investors who believe that "this time it is different". Even a basic reading of economic history should be enough to cure people of this delusion.

The Great Crash (J K Galbraith): A concise history of the stock market crash of 1929, the events which preceded it and the depression which followed.

Against the Gods: the Remarkable Story of Risk (Peter Bernstein): a history of risk in business and how it is perceived and managed.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms (Russell Napier): a look at bear markets and how they end. A little bit dry, but still an excellent and worthwhile read. This book was at least partly responsible for putting most of my cash into the market between October 2008 and May 2009.

Some books which I really should get around to reading:

A Random Walk Down Wall Street (Burton Malkiel)

When Genius Failed: the Rise and Fall of Long Term Capital Management (Roger Lowenstein)

I was tempted to write a post on the ten worst or most overrated books I have read but I'd prefer not to get sued.